Martin Lewis advised savers to act as when compared to how rates were last March, at least for fixed deals, the rates on offer today have increased by more than double. The Money Saving Expert highlighted where the best options are at the moment.
Today, Moneyfacts released its latest “Pick of the Week” which highlighted the best deals available to Britons.
The highest rate on offer comes from Monument Bank, with its five year fixed term deposit account providing relatively decent returns.
Rachel Springall, a Finance Expert at Moneyfacts.co.uk, commented: “Launching onto the savings market this week is Monument Bank, offering a range of fixed accounts via its mobile app. At 2.05 percent, its five-year fixed rate deal takes a place within the top 10 compared to alternative bonds with similar terms.
“Savers who have a minimum of £25,000 to invest may find this deal enticing and be pleased to see more competition injected into the savings market.
“There is no earlier access permitted with this deal so savers must be comfortable with the duration of the fixed deal, however further additions can be made for 14 days from account opening. Overall, this account receives an Excellent Moneyfacts product rating.”
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Switching and saving trends
Despite these new higher rates, many savers may miss out on the benefits as apparent inertia takes hold. Recently, Derek Sprawling, the savings director at Paragon Bank, examined the recent trends seen in household savings deposits.
He said: “As we approached the end of the summer, there was some evidence that Brits were starting to slow the pace at which they have been saving money.
“Bank of England data indicated that non-interest bearing account balances were static between the months of June and September. This category can be used as a proxy for current account balances and has seen an increase of around a third over the course of the last 18 months, as people accumulated pandemic savings.
“The trend of the interest-bearing accounts reflected similar themes. Between July and August, the easy access market grew by less than £2billion, despite the category being the biggest proportion of growth across the savings landscape throughout the pandemic. The interest-bearing time deposits category, which captures fixed rate bonds and notice accounts, has been in steady decline throughout the last year and saw a small loss in value within the same period.
“However, September data showed a sharp reversal of this trend as Brits seemed to once again prioritise saving habits, with deposits experiencing a jump across the board. Easy access balances grew by nearly £9billion, with an increase of this size not seen since lockdown lifted, while current account balances saw a £4billion boost.
“The factors impacting this trend are numerous. The anxieties associated to the furlough scheme ending in September, and consequent levels of job insecurity, might be a key factor. Households are also beginning to make provisions for the festive season, while record spending levels around the August bank holiday might have also contributed to the sharp contrast between August and September.”
Mr Sprawling concluded: “There has been a considerable amount of competition in the current account space, with banks launching a range of incentives including switching bonuses, typically ranging from £100 to £150. However, levels of inertia are also very high, and people continue to pile savings in current accounts or low paying easy access accounts, simultaneously missing out on hundreds of pounds worth of interest. It is important for savers to remember that switching rewards offered by high street banks can be exceeded by moving savings away from low-paying accounts.
“The average savings balance currently stands at £12,211 – if savers placed that balance in a one-year-fixed rate account earning one percent, the average best-buy table rate for a one-year fixed rate bond, they would earn £122 in a year.
“Yet analysis of CACI data from Paragon Bank showed that nearly three quarters of easy access non-ISA saving balances continue to receive a rate of 0.1 percent or less. With the easy access category seeing exponential growth during the pandemic, this amounts to billions of pounds’ worth of missed interest.
“Indeed – the total value of easy access non-ISA balances receiving a rate of 0.1 percent or less recorded on CACI’s database stands at £424 billion, spread across 42 million low paying accounts – an average balance of more than £10,000. If every saver moved that money to a one-year bond they’d earn at least the value of a £100 switching bonus within a year.
“If all funds currently earning a rate of interest of 0.1 percent or below moved to a best-buy easy access rate of 0.65 percent, at least an additional £2.33billion in interest would be earned.”
Bank of England base rate
Savings rates are low across the board at the moment as the Bank of England keeps the base rate at 0.1 percent. This in turn limits what retail banks can offer to customers.
Many experts expected to raise rates during its most recent review in light of skyrocketing inflation but the central bank refused to budge.
However, a number of economists, including those at the Bank of England itself, have warned inflation could rise even further as 2022 approaches. Some estimates have warned inflation may easily surpass five percent by the spring.
With these looming price rises, many expect the Bank of England may have no choice but to raise interest rates before the year is out.